Master Thesis
DEVELOPMENT
STRATEGY
FOR
NORTHERN CYPRUS
Mustafa Giindiiz
Supervisor: Assist. Prof. Dr. Erdal Giiryay
Department of Economics
Nicosia - 2003
Approval of Head of the Institute
l' .
Prof Dr. Ij'.akhrad4m Mamedov
we certify that this thesis is satisfactory for the award of a degree in Master in Economics
Examining Commitee in Charge
Prof Dr. Jouni Suistola Chairman of the committee. Dean
Faculty of Economics and Administrative Science - NEU
Assist. Prof Dr. Erdal Guryay Chairman, Department of Business Administration - NEU (Supervisor)
f~
Assist. Prof Dr. Huseyin Ozdeser
Assist. Prof Dr. Okan Safakh Department of Business Administration - NEU
HI
Dr. Ali Dayioglu Department of International Relations - NEU
Finally I would like to thank to Mr. Ahmet Ertugan for his help in proof reading and the faculty assistants Mr. Cemal Kavalcioglu and Mr. Ugur Can for their kind help in writing of this thesis.
advise and belief in my work and me over the course of the M. Sc. Degree in Economics.
Secondly I would like to express my gratitude to Near East University for the scholarship that made this work possible
Third, I thank to my family for their constant encouragement and support during the preparation of this thesis.
ABSTRACT
This thesis is devoted to introduce a development strategy for the TRNC. The political situation, the ambiguities and possible changes play an important role on the economic expectations and policy decisions in the TRNC.
The development strategy has a main assumption that, the negotiations between the leaders of the two communities will be successful. One 'Common Government' and two 'Component States' (the Turkish Component State of Cyprus in the north, and the Greek Component State of Cyprus in the south) will be established, according to the proposed plan by the UN Secretary General Mr. Kofi Annan. Another assumption is that, the settlement agreement will be applied very successfully and any the short-term social problems will be settled without any intercommunal trouble and the newly established common government of Cyprus will be a member of the EU.
The retrospective analysis of the TRNC economy is made in Chapter I. The analysis is based on statistical data from the 'Economic and Social Indicators' of the State Planning Organization of the TRNC Prime Ministry. The study was made in the year 2002 and the first chapter is closed on October 2002. The economic and social indicators of the year 2001 were not ready at that time. Therefore the retrospective analysis ends in the year 2000 in Chapter I.
Since the TRNC is a small island country and this thesis is aimed to introduce a development strategy for the TRNC, Chapter II is devoted to give short theoretical information about the Small Island Economies and the concept of development. The common characteristics of small island economies are discussed in this chapter.
Chapter III is de~oted to examine the experiments of some countries, which were, developed in the second half of the twentieth century. Some lessons are derived from their experiments. These countries are, South Korea, Taiwan, Hong Kong,
The development strategy is offered in Chapter IV. The strategy includes the organization of civil services, government policies (monetary, fiscal, budgetary, structural and sectoral policies).
Abbreviations
CAP Common Agricultural Policy of EU CFP Common Fishery Policy of EU
CM Common Market
CTO Cyprus Tourism Organization
cu
Customs UnionEDB Economic Development Board EEAP Emergency Economic Action Plan EMU Economic and Monetary Union EPZ Export Process Zones
ERDF European Regional Development Fund ESF European Social Fund
ETC European Travel Commission
EU European Union
FDI Foreign Direct Investment FTA Free Trade Area
FYDP Five Years Development Plan
GATT General Agreement on Tariffs and Trade GNP Gross National Product
ITRI Industrial Technology Research Institute NIC Newly Industrialized Countries
SBIP Science Based Industrial Park SIDS Small Island Developing States SPO State Planning Organization
TL Turkish Lira
TR Turkey
TRNC Turkish Republic of Northern Cyprus
UK United Kingdom
UN United Nations
USD United States Dollar WTO World Trade Organization
Figure 2.1 Figure 3.1
Figure 4.1 Figure 4.2
List of Figures
Pressures on the Developing Countries
The Main Factors Which Resulted the Development of Asian Tigers
Economic Organization of the TRNC Economic Organization of the
Turkish Component State of Cyprus
79 85
158 159
List of Graphs
Graph 1.1 GNP of the TRNC (1977 Prices Million TL) 5
Graph 1.2 GNP of the TRNC (Million USD) 5
Graph 1.3 GNP per Capita of the TRNC (1977 Prices TL) 6
Graph 1.4 GNP per Capita of the TRNC (USD) 6
Graph 1.5 Growth Rate of the TRNC (%) 6
Graph 1.6 Inflation Rate of TRNC (%) 7
Graph 1.7 Budget Deficit of the TRNC (Million USD) 8
Graph 1.8 Sectoral Development of Agriculture (!977 Prices) 14
Graph 1.9 Sectoral Development of Industry ( 1977 Prices} 14
Graph 1.10 Sectoral Development of Tourism (1977 Prices) 14
Graph 1.11 Sectoral Development of Trade (1977 Prices) 15
Graph 1.12 Sectoral Development of Construction ( 1977 Prices) 15
Graph 1.13 Sectoral Development of Transport and Communication 15
(1977 Prices)
Graph 1.14 Real Growth Rate of Sectoral Value Added of 16
Agriculture (%)
Graph 1.15 Real Growth Rate of Sectoral Value Added of Industry(%) 17
Graph 1.16 Real Growth Rate of Sectoral Value Added of Tourism(%) 17
Graph 1.17 Real Growth Rate of Value Added of Trade (%) 18
Graph 1.18 Real Growth Rate of Sectoral Value Added of Construction (%) 18
Graph 1.19 Real Growth Rate of Sectoral Value Added of 18
Transport and Communication (%)
Graph 1.20 Sectoral Contribution of Agriculture to GDP (%) 19
Graph 1.21 Sectoral Contribution of Industry to GDP(%) 20
Graph 1.22 Sectoral Contribution of Tourism to GDP(%) 20
Graph 1.23 Sectoral Contribution of Trade to GDP(%) 20
Graph 1.24 Sectoral Contribution of Construction to GDP (%) 21
Graph 1.25 Sectoral Contribution of Transport and Communication to 21
GDP(%)
Graph 1.26 Sectoral Development of Financial Institutions (1977 Pre) 30
Graph 1.27 Sectoral Development of Business and Personal Services 31
Graph 1.28 Sectoral Development of Public Services (1977 Prices) 31
Graph 1.29 Sectoral Development of Import Duties ( 1977 Prices) 31
Graph 1.30 Real Growth Rate of Sectoral Value Added of 32
Financial Institutions (%)
Graph 1.31 Real Growth Rate of Sectoral Value Added of 33
Business and Personal Services (%)
Graph 1.32 Real Growth Rate of Sectoral Value A-dded of Public Services (%) 3 3
Graph 1.33 Real Growth Rate of Sectoral Value Added of Import Duties (%) 33
Graph 1.34 Sectoral Contribution of Financial Institutions to GDP(%) 34
Graph 1.35 Sectoral Contribution of Business and Personal Services to 35
GDP(%)
Graph 1.36 Sectoral Contribution of Public Services to GDP(%) 35
Graph 1.37 Sectoral Contribution of Import Duties to GDP(%) 35
Graph 1.38 Exports of the TRNC (Million $) 40
Graph 1.39 Imports of the TRNC (Million $) 40
Graph 1.40 Net Tourism Revenues of the TRNC (Million$) 40
Graph 1.41 Foreign Trade Balance of the TRNC (Million$) 41
Graph 1.42 Tax Revenues of the TRNC (1977 Prices) 45
Graph 1.43 Other Incomes of the TRNC (1977 Prices) 46
Graph 1.44 Fund Revenues of the TRNC ( 1977 Prices) 46
Graph 1.45 Total Local Revenues of the TRNC (1977 Prices) 46
Graph 1.46 Other Foreign Aids of the TRNC (1977 Prices) 47
Graph 1.47 Aids From Turkey to the TRNC (1977 Prices) 48
Graph 1.48 Loans of the TRNC (1977 Prices) 48
Graph 1.49 Total Foreign Aids and Loans of the TRNC (1977 Prices) 48
Graph 1.50 Current Expenditures of the TRNC (1977 Prices) 49
Graph 1.51 Personal Expenditures of the TRNC ( 1977 Prices) 50
Graph 1.52 Social Transfers of the TRNC (1977 Prices) 50
Graph 1.53 Defense Expenditures of the TRNC (1977 Prices) 50
Graph 1.54 Investments of the TRNC (1977 Prices) 51
List of Tables
Table 1.1 GNP of the TRNC (1977 - 2000) 4
Table 1.2 Economic Indicators of the TRNC 7
Table 1.3 Indicators of Sectoral Developments 13
(1977 Prices Million TL)
Table 1.4 Real Growth Rates of Sectoral Value Added (%) 16
Table 1.5 Sectoral Distribution of Gross Domestic Products (%) 19
Table 1.6 Indicators of Sectoral Developments ( 1977 Prices Million TL) 30
Table 1.7 Real Growth Rates of Sectoral Value Added (%) 32
Table 1.8 Sectoral Distribution of Gross Domestic Products 34
Table 1.9 Foreign Trade Indicators of the TRNC (Million$) 39
Table 1.10 Balance of State Revenues ( 1977 Prices Million TL) 45
Table 1.11 Balance of Foreign Aids and Loans of the TRNC 47
(1977 Prices Million TL)
Table 1.12 Balance of State Expenditures of the TRNC 49
( 1977 Prices Million TL)
Table 1.13 Balance of State Revenues and Expenditures 52
( 1977 Prices Million TL)
Table 2.1 Customs Barriers of Some Domestic Industrial Products 60
oftheTRNC
Table 2.2 Students Who Had University Education 65
In The Academic Years 1999 - 2000
Table 2.3 Sectoral Distribution of Employment in the TRNC (Year 2000) 66
Table 2.4 The Scale of The Firms of the TRNC Based on 67
The Number of Employees Year 1998
Table 2.5 The Number of Firms In Some Sub sectors 67
of the TRNC (Year 1998)
Table 2.6 Unemployment in the TRNC in Between 1994 - 2000 70
Table 2.7 Treatments Provided By State Hospitals of the TRNC 70
Between 1994 - 1999
Table 2.8 Criminal Appeals Filed and Finalized in the TRNC 70
Between 1994 - 1999
Table 2.10 Deposits and Investments in the TRNC 74
Table 3.1 Comparison of The Strategies of Some 125
Newly Industrialized Countries (First Period)
Table 3.2 Comparison of The Strategies of Some 126
Newly Industrialized Countries (Second Period)
Table 3.3 Comparison of The Strategies of Some 127
Newly Industrialized Countries (Third Period)
Table 3.4 General Strategies of Some Newly Industrialized Countries 128
Table 3.5 Common Factors Which Helped The Quick 129
Development of The Newly Industrialized Countries
Table 3.6 The General Development Strategies of The Republic of Cyprus 130 Table 3.7 The Economic Development Strategies of 131
The Republic of Cyprus
CONTENTS Acknowledgement Abstract 11 Abbreviations IV List of Figures V List of Graphs VI List of Tables Vlll Contents X Introduction Xlll
Chapter I The Retrospective Analysis of The TRNC Economy
1.1 1.2 1.3
History of the TRNC
The Economic history of Turkish Cypriots
Analysis ofEconomic and Social Indicators of the TRNC
1 2 5 8 9 12 12 21 21 23 25 26 27 28 36 37 37 38 41 42 1.3.1 Analysis of GNP Growth and Inflation of the TRNC
1.3 .1.1 Effects of Outside Economic Factors on the TRNC Economy 1.3.1.2 Effects of The Political Situation of the TRNC
1. 3 .1. 3 Effects of Internal Economic Structure
1.3.2 Analysis of Sectoral Developments of the TRNC 1.3.2.1 Agriculture
1.3 .2.2 Industry 1.3.2.3 Tourism 1.3.2.4 Trade 1.3 .2. 5 Construction
· 1.3.2.6 Transport and Communications 1.3 .2. 7 Financial Institutions
1.3.2.8 Business And Personal Services 1.3.2.9 Public Services
1.3.2.10 Import Duties
1.3.3 Analysis of Foreign trade Indicators of the TRNC 1.3.3.1 Exports
1.3 .3 .2 Imports
1.3.3.3 Net Tourism Revenues
1. 3. 4 Analysis of State Revenues and Expenditures 1. 3. 4 .1 Local Revenues
1.3.4.2 Foreign Aids and Loans 1.3.4.3 State Expenditures 1. 3. 5 Chapter Conclusion 43 44 52 53 54 55 57
Chapter II Small Island Economies and Development
2.1 Small Island Economies 59
2.1.1 Small Size 59
2.1.2 Insularity and Remoteness 62
2.1.3 Access to External Capital 63
2.1.4 Limited Institutional Capacity 64
2.2 Economic Development 68
2.2.1 Economic Growth and Development 68
2.2.2 The Goals of Development 69
2.2.3 Development Strategies 71
2.2.4 Problems of Developing Countries 72
2.2.5 The Fundamental Factors Which Effect Today's Developing Countries 74 2.2.6 The Political Dilemmas in Economic Development 76
2.2.7 Comparative Advantages of The Countries 78
2.3 Chapter Conclusion 81
Chapter ID The Development Experiments of Some Countries
3.1 Development Experiments of Some Countries 83
3.2 The South Korea Experiment 87
3.2.1 Chaebols 90
3.3 The Taiwan Experiment 92
3.4 The Hong Kong Experiment 95
3.6 Lessons From The Development Strategies of Asian tigers 98
3.7 The Cyprus Experiment 101
3.8 The South Cyprus Experiment 104
3.8.1 Agriculture 108
3.8.2 Tourism 110
3.8.3 Manufacturing 114
3.9 The Ireland Experiment 118
3.10 Chapter Conclusion 133
Chapter IV Development Strategy For Northern Cyprus
4.1 General Remarks About The Strategy 135
4.2 Restructuring of Civil Services 137
4.3 Sectoral Strategies 140 4.3.1 Finance 140 4.3.2 Industry 142 4.3.3 Trade 143 4.3.4 Tourism 144 4.3.S Agriculture 146 4.3.6 Service Sector 147 4.3.7 Construction 149
4.3.8 Transport And Communication 150
4.4 EU Membership 151
4.5 Revision of the Development Strategy 152
4.5.1 Revision of the Restructuring of Civil Services 153
4.5.2 Revision in the Sectoral Strategies 155
4.6 Conclusion 156
INTRODUCTION
The aim of this thesis is to introduce a development strategy for northern Cyprus. The political situation of the TRNC that is the unsettlement, embargoes and isolation play an important role on the TRNC economy. The negotiations for the settlement of the Cyprus problem, between two communities have been continuing for many years. The unsettlement of the problem has no negative effect on the economic development of South Cyprus except high defense expenditures. Therefore the TRNC has to find a way for her economic development by taking into account the possible political changes in the short and long runs.
There is no unique way of increasing the richness of a country. Every country has to take into account their opportunities and threats in the global world market and also has to use their internal strength and also has to overcome its weaknesses. The non- settlement of the Cyprus problem hence the embargoes and non-recognition of the TRNC are external weaknesses of the TRNC. A clever economic development strategy overcomes these weaknesses.
The hypothesis of this thesis is; the economic development of TRNC is possible by applying a clever development strategy. The strategy has to take into account the possible political changes of the current situation. The development strategy has to take into account certain assumptions about the ongoing political negotiations between the two communities. These assumptions have to be considered as the starting point of the strategy. Then, by examining the situations of each sector separately analyzing the dynamic advantages and threads of each sector, introducing a separate development pattern for each sector also introducing macroeconomic and structural policies an economic development strategy could be established.
An economic development strategy is the total methodology and planning for
the economic development of a country. It is a dynamic process, which· controls and
corrects itself The economic development means the increase in wealth and the welfare of the individuals in the economy. The growth in per capita income of the country does not mean economic development. The decrease in poverty and unemployment and also the decrease in the income gap between the high and low-income groups are important.
In this thesis, the retrospective analysis of the TRNC economy is made in order to find out the basic factors of the unsatisfactory development of the TRNC. The retrospective analysis of each sectors are made separately. This helped to find out the strengths and weaknesses of each sectors individually. The retrospective analysis of the TRNC economy is based on the statistical data and the Economic and Social Indicators 2000 of the State Planning Organization of the TRNC Prime Ministry.
The TRNC is a small island economy. Therefore the common characteristics of small island economies introduced and the implications of these characteristics on TRNC economy are discussed in this thesis.
The experiments of some recently developed countries are studied. The selected countries are the recently developed countries, namely in the second half of the twentieth century. Also the selected countries are relatively small economies. The experiment of South Cyprus is examined because the TRNC is on the same island and after the settlement the two economies will be integrated. The development of Ireland is also examined because the development of Ireland took place after the accession to the EU. The analysis of the development experiments of the selected countries is based on the published data about these countries. No interviews with the economic bureaucrats
and technocrats were made.
The main assumption of the introduced development strategy is that the settlement negotiations between the leaders of two communities will be successful. A 'Common Government' and two 'Component States' (The Turkish Component State in the north, and the Greek Component State of Cyprus in the south) will be established according to the proposed plan by the UN Secretary General Mr. Kofi Annan. The second assumption of this thesis is that there will be no serious intercommunal troubles and social problems during the realization of the settlement agreement. Also, as it is mentioned in the proposed Annan plan, the newly established Common Government of Cyprus will be a member of the EU. If it will not become possible to achieve a settlement through the proposed Annan plan, then the introduced development strategy of this thesis will not be applicable. If this happens revision in the development strategy
has to take place for the unsettled situation of Cyprus and the accession of South Cyprus to the EU. At the end of the fourth chapter a revision section is put for this purpose.
The introduced strategy takes into account the iterative integration processes between the North Cyprus and the South Cyprus economies, and the integration of the whole Cyprus economy with the European Economy. The strategy offers new organization of the economic civil administration of the TRNC. Also the strategy offers new macroeconomic and structural policies for the TRNC. Finally the strategy offers new development patterns for the main sectors of the TRNC.
THE
RETROSPECTIVE ANALYSIS
OF THE
1.1 History Of TRNC
There have been a lot of political changes in the history of Cyprus. These political changes created changes in the economic structure of the island. After controlling mote than three centuries, the Ottoman Empire rented Cyprus to Great Britain in 1878. After the First World War, Cyprus became a crown colony of Great Britain.
In the 1950s, struggles against colony regime started. In those days more than 95% of the population was made up of Turks (Approx 20%) and Greeks (Approx. 76%). The aim of Greek Cypriots fighting against the colony regime was to join Cyprus to their motherland Greece, while the aim of Turkish Cypriots was to divide Cyprus into two parts and join the northern part to their motherland Turkey and leave the southern part to Greek Cypriots. The two communities never fought together against the colony regime.
In the year 1960 Great Britain agreed to leave Cyprus. Turkey, Greece and Great Britain agreed to establish a new government in Cyprus, namely Republic of Cyprus'. Republic of Cyprus was a functional federation where Turkish Cypriots were represented by 30% and Greek Cypriots were represented by 70% in the administration.
The life of this republic lasted three years. In the year 1963 struggles between the Turkish and Greek Cypriots started. Turks expelled out from the government. Turkish Cypriots were forced to leave mixed settlements and other small Turkish villages.
Between 1963 and 197 4 Turkish Cypriots were forced to live in the separated small
towns (Totally about 5% territory of the island). The borders of these towns surrounded by Greek Cypriots. Starting from the year 1964, the 'Republic of Cyprus'. 100% of which was represented by Greek Cypriots, was recognized by other counties as Republic of Cyprus.
In 1974, with the help of Greece, Greek Cypriots tried to change the political
regime of Cyprus and join the island to Greece. 2 Turkey sent military forces to Cyprus
1 15 Augost 1960, The declaration of independence of the Republic of Cyprus ·
and Cyprus was effectively divided into two parts. 3 Two communities were separated from each other. The northern part of Cyprus (Approx 34% of the island) became the Turkish side of Cyprus, in which Turkish Cypriot administration established. Afterwards this administration declared itself as a separate republic in the island; namely Turkish Republic of Northern Cyprus (TRNC), but only the motherland Turkey recognized it.
Today, the TRNC is the government of Northern Cyprus, which is not recognized by any other countries except motherland Turkey. There are Greek embargoes against the TRNC. Although the government of south Cyprus 'Republic of Cyprus' does not
fulfill the agreements of 1960, it is accepted by all countries of the world ( except
Turkey) as the government of whole Cyprus. The 'Republic of Cyprus' represents Cyprus in the United Nations and other international institutions.
The 'Republic of Cyprus' applied for the membership of the EU as the representative of the whole Cyprus and the accession negotiations expected to be completed in the year 2002. The EU declared that, whether or not the final settlement in Cyprus is achieved, the EU will accept the 'Republic of Cyprus' as a member.
Turkey is also accepted, as a candidate to the EU but the accession negotiations haven't started yet. The Turkish Parliament has passed on numerous legislation to date in parallel with the EU criteria.
1.2 The Economic History of Turkish Cypriots
When the Ottoman Empire conquered Cyprus, Turkish population transferred from Anatolia to the island. Those people constitute the origins of the Turkish Cypriots. In the period of the Ottoman Empire, Turks were the landowners and the main economic activities were agriculture and the production of the related tools and equipments and repair.4
3
20 July 1974 Turkish Peacekeeping Operation
4
Under the British Colonial Administration, trading and business activities passed to Greek Cypriots. Many of the Turkish Cypriots sold their lands to Greek Cypriots.
In the years of the Republic of Cyprus (1960 - 1963) the economic activities carried out mainly by Greek Cypriots. Exports, imports, industrial production and tourism were under the control of Greek Cypriot companies. Turkish Cypriots were doing only secondary businesses that buying goods from Greek Cypriot wholesalers and selling to Turkish Community. Turkish Cypriots were mainly engaging in the agricultural production and they were selling their products to the Greek Cypriot wholesalers and exporters. Tourism was under the control of Greek Cypriot companies and their joint ventures. Turkish Cypriot tourism companies were selling travel tickets to the Turkish Community.
The years between 1963 and 1974 were the dark years for Turkish Cypriots. Especially in the years between 1963 and 1968 Turkish Cypriots fought for survival. In
those years, Turkish Cypriots survived with the aids coming from motherland Turkey. 5
After 1968 the blockades around the Turkish towns were released. Then, Turkish Cypriots able to sell their agricultural products to the Greek Cypriot wholesalers and exporters and also Turkish Cypriot buyers in bigger towns. On the other hand, Turkish Cypriots were buying imported goods from the Greek Cypriot importers and other
products from Greek Cypriot industrialists and selling them in "Turkish towns. Starting
from the 1950s, small production units ( especially textile and food production) were
established by some Turkish Cypriot enterpreauners.
Between 1963 and 1974, the 'Republic of Cyprus' functioned as a Greek Cypriot Republic and all the investments and developmental programs applied to the Greek parts. In particular they made programmed investments on tourism and related industries. Greek Cypriots and their joint ventures built big hotels in Kyrenia, Varosha, Famagusta and Limasol. The international transportation completely controlled by the Greek Cypriot companies. The airport and the seaports were in the Greek hands.
5
After the military operation of Turkey, the Turkish Cypriots were gathered in the northern part of Cyprus where controlled by Turkish troops. Turkish Cypriots established their own administrative authority in the north (TRNC). The Greek Cypriots wealth in Northern Cyprus, factories and Famagusta port were left to the Turkish Cypriots. TRNC established its own economic policy for development of Northern Cyprus, but always under the pressure of two constraints namely embargoes and non- recognition.
The aim of this thesis is to examine economic structure of the TRNC and offer economic development strategy for TRNC.
Table 1.1 GNP of the TRNC 1977-2000
GNP 1977 PRC GNP Million GNP PER GNP PER GROWTH
Million TL USD CAPITA 1977 Prs CAPITA USD RATE%
VIL TL 1977 3810,5 209,4 26279 1444 1978 4031,5 21'4,7 27472 1463 5,8 1979 4210,1 231,1 28351 1556 4,4 1980 4248,4 233,6 28396 1561 0,9 1981 3929,8 217 25985 1335 -7,5 1982 4369,5 208,5 28430 1361 . 11,2 1983 4440,4 202,9 28552 1305 1,6 1984 4725,2 201,2 29909 1274 6,4 1985 5080,4 240,2 31696 1498 7,fj 1986 5324,1 285,9 32728 1757 4,8 1987 5684,1 331,6 34442 2009 6,8 1988 6084 341,7 36375 2043 7 1989 6603 425,4 39008 2513 8,5 1990 6977,4 591 40692 3447 5,7 1991 6606,4 541,4 38021 3116 -5,3 1992 7124,7 585,5 40685 3343 7,8 1993 7547,4 624,9 42612 3528 5,9 1994 7268,3 554,3 40558 3093 -3,7 1995 7457,8 755,7 41121 4167 2,6 1996 7673,4 773,9 41865 4222 2,9 1997 7990,4 759,8 39573 3763 4,1 1998 8468,1 890,5 41465 4361 6 1999 9090,8 963,9 44010 4666 7,4 2000 9037.9 1039.9 43267 4978 -0,6
Source: TRNC Prime Ministry, SPO, Economic and Social Indicators, 2000
1.3 Analysis of Economic and Social Indicators of the TRNC
The economic indicators concerning TRNC are the published data of the State Planning Organization (SPO) of TRNC Prime Ministry. There aren't any written data for the years between 1974 and 1977. The retrospective analysis of theTRNC economy based on the data of the years between 1977 and 2000 published by SPO.
GNP tCXXX) 800J &XX) 4CXX) 2CXX) 0 ~~ ~'o "(?) S:> " n. C) ~ ~ !o ~ ~ 9> £1 " 0, e ~ ~ ..!b " [b ,.R, ,..£1
~~~~~~~~#~~~~~~~~~#~~~~~
Graph: 1.1 GNP of the TQNC (1977 Prices Millions)
GNP 1200 1(XX) 800 &X) 400 200 0. "~ "'o "(?) ..r;..~ " n. C) ~ S:> ,s, ~ ,s, 9) ,..£1 " ft, r., ~ ~ !o " [b e, S:) ~ ~ "(?) ~ ~ "cl' "cl' "OJ' "~ ~ ~ ~ "~ "qj• "'9> "'9> "'9> "q;,
# ~ ~
#'
$' n,,r:SSGNP 5CXXX) 4CXXX) 30COO 2CXXXJ 10000 0
Graph: 1.3 GNP PER CAPITA of the TRNC (1977 prices TL)
GNP 6COO 5CXX) 400) eeeo '2000 1CXX) D "~ "t:t, "~ _o,.t::> " n, ~ .,). ~ !o " ,a, e, s:) " n, !!) ..> ~ ~ " lo ~ s:) •.. ~ •.. ~ •.. ~ •.. ..,.. •.. rl' •.. rl' "rt, •.. ~ •.. <JP ~ -c rl' •.. ~ "df,
.fl' •..
ii' •.. ii' 41' "Cl? ••. ~ "Cfi" ••. ii' "rf.J "Cl? 'l;r:SSGraph: 1.4 GNP PER CAPITA of the TRNC (USD)
% 15 10 5 0 -5 -10
"~ ,A.t:t> "O:J ~ " n, e ~ ~ ,a, " lo e, rS) " n, !':> ..> ~ ~ " ..,!b ~ s:)
"QI "'I)' ••. ~ ~ ••. rl' •.. rl' •.. rl' "1:8" "df, "1:8" ••• rl' "dji
#
"q;, ••. ii' "ii' "ii' "Cl?,I" ~ •..
ii' "Cl? "rf} 'l;r:SSTable 1.2 Economic Indicators of the TRNC
BUDGET BANK FORING
INFLATION EXCHANGE
YEAR RATE DEFICIT Million DEPOSITS RESERVES
$ Million$ Million$ 1977 20 93,4 2,4 1978 32,4 14,8 95,2 6 1979 77,7 19,1 67 4,6 1980 93 20,9 45,9 5,7 1981 42,8 17,9 48,9 13,8 1982 33,2 17,4 53,4 18,6 1983 33,8 16,1 59,9 27,9 1984 70,7 18,5 69,1 41,6 1985 43 23,7 88,2 61,3 1986 48,1 33,1 121,2 83,5 1987 43 24,2 174,5 116 1988 62,6 13,6 177,8 149,7 1989 51,8 11,3 234,9 183,2 1990 69,4 31,9 277,6 183,7 1991 46,3 60,8 295,8 217,8 1992 63,4 49,5 355,3 233,9 1993 61,2 46,7 436,4 301,9 1994 215 29,4 426 348,9 1995 72,2 83,7 499,8 417,8 1996 87,5 32 581,3 513,8 1997 81,7 22,6 659,1 510 1998 66,5 29,6 735,7 622,3 1999 55,3 66,6 837,2 654,4 2000 53,2 68,6 920,3 631,9
Source: TRNC Prime Ministry, SPO, Economic and Social Indicators, 2000
% zso 200 150 1'00 50 0
Million$ 100 80 00 40 20 0
l' ~'o ~O:, ~ " !:I, !!> ..). ~ !.o t\ to 9 ,$:> " 1:1, !!> ~ ~ ,&, ~ to .9l £)
"O:, ~ ~
#
"c§> "c§> ~ "qp#
"r:63 ~#
"4> ~41
"tfJ "tfJ •... ~ "cf!, •••. ~ ~ "<!/) ~ 'l,r:Sl Graph: 1. 7 Budget Deficit of the TRNC (Million USD) on USD)1.3.1. Analysis of GNP, Growth and Inflation of TRNC6
The GNP of TRNC was 3 810. 5 million in the year 1977 and it became to 903 7. 9
million TL in the year 2000, with the constant prices of 1977. During the period of 24 years from 1977 to 2000 the GNP of TRNC increased 2.37 times with the prices of
1977. (Table 1.1)
If we examine the GNP on USD basis then in the year 1977, the GNP of the TRNC was 209.4 million dollars and it became 1039.9 million dollars by the year 2000, after 24 years. This means that GNP of TRNC increased 4.95 times during this period. (Tablel. l)
GNP per capita with the 1977 prices was 26279 TL in the year 1977 and it became 43267 TL in the year 2000, which means that the GNP per capita of TRNC increased only 1.64 times with 1977 prices, during this period. (Table 1.1)
The GDP per capita on dollars was 1444 dollars and it became 4978 dollars in the year 2000. This means that the GNP per capita of TRNC increased 3.44 times in dollar basis, during the period of 24 years.
Great fluctuations took place in the growth rate of TRNC during the period of , 24 years between 1977 and 2000. (Graph 1.5) In the years of 1981, 1991, 1994 and 2000 the TRNC economy showed negative growth. These years were the crisis years of
The TRNC economy was always under the pressure of four basic factors, namely:
1- Effects of external economic factors
11- Effects of political situation ofTRNC
111"' Effects of internal economic structure
iv- Effects of size of the economy (Small island economy)
the Turkish economy. When there was recession in Turkey, the economy of the TRNC also had recession. This analysis shows that, the TRNC economy is directly linked to the Turkish economy.
In the period of 24 years starting from 1977 to 2000 the TRNC economy grew 3. 75% per year on average. (Table 1.1) The growth rate is not satisfactory.
The TRNC economy had high inflation rate in the 24 years period of 1977 - 2000. During this period the inflation of the TRNC never had a single digit level. It was always at two digits and in the band of 50% - 90%. The lowest inflation of this period was 32.4% at the beginning of the period in the year 1978. the TRNC had galloping in the year 1994 with the level of215% (Table 1.2)7
The effects of the above factors on the economy of the TRNC will be explained during the analysis of the economic indicators of the TRNC. The effects of extrnal economic factors are explained below.
1.3.1.1 Effects of External Economic Factors on the TRNC Economy
The main external factor, which affects the economy of the TRNC, is the Turkish economy. Turkey (TR) and TRNC are using the same monetary unit, namely Turkish Lira (TL). Therefore the TRNC economy is directly related to the Turkish economy. Although TR and TRNC are using the same monetary unit, they don't have an economic union between each other. The economies of the two countries (TR and TRNC) are organized as two separate economies, which have the same monetary unit in circulation. This is a unique kind of integration, with negative effects to the small
7
economy, namely TRNC economy. The theory of the levels of economic integrations is examined below.8
Free Trade Area (FT A)
Member countries abolish tariffs or quotas on trade among themselves, but they are free to determine tariffs and quotas on non-member countries.
Customs Union (CU)
In addition to FT A member countries apply common tariffs and quotas on imports from
non-member countries.
Common Market (CM)
Besides the free movement of goods and services among the countries within the customs union, member countries have free movement of labor and capital and companies.
Economic Union (EU)
Further to the common market level of integration, member countries have common macroeconomic policies, such as common agricultural, industrial, competition, environment, transportation, regional policies but not common monetary policy.
Economic and Monetary Union (EMU)
This is the highest level of economic integration where member countries have common monetary policy besides other macroeconomic policies. They have a single currency and a central bank, and member states become regions within the union.
In the TRNC the monetary unit of Turkey TL is circulating but there is no unification, (any kind of integration) between TR and TRNC. Two countries do not apply the same macroeconomic policies. In other words, although the TRNC uses TL, she does not follow the same fiscal policies as the TR and she has some differences and J:ime lags in the application of monetary policies.
8 Ahmet Z. Bulunc, Ekonomik Biitiinle~menin Tammi, Tilrleri ve Ama~lan, Yaymlanmamis Doktora
TRNC imports from TR the basic macroeconomic indicators, such as, interest rates, exchange rates, and inflation; because the TRNC has the same currency of TR. TRNC has no chance to balance these basic macroeconomic indicators but accepts them as given by Turkey.
On the other hand, because of the big gap of public income and expenditure, and because of the closed and small (without any deepness) economy, the TRNC has her own inflation. This inflation is added on top of the inflation imported from Turkey. Therefore the inflation level of TRNC is higher than the inflation level of Turkey.
Turkey and TRNC are using a common currency but they don't have an economic union between each other, therefore the factors of production and the products do not move freely in between them. Since the TRNC has a higher inflation level than Turkey (because the TRNC's inflation is added on top of the inflation of Turkey) and since Turkey and TRNC has the same exchange rates, the value of TL in TRNC is higher then the value of the TL in Turkey. The phenomenon is explained below:
In the period of January - August 2001 the inflation in Turkey was 39.0% and in TRNC the inflation was SJ.24%9. The difference 14.24% is the self-inflation of the TRNC. On the other hand, the two countries had the same exchange rates. Therefore, in the TRNC with the same exchange of one dollar, fewer amounts of goods and services then Turkey could be obtained. This mean,s overvalued TL in TRNC. This has a negative effect on the production, exports, and tourism ofTRNC.
During the period of 24 years (1977 - 1999) the Turkish economy had several cnses. These crises had multiplying effects on the TRNC economy. Turkish governments had applied several shock programs to the Turkish economy in order to overcome the crisis. On the other hand the TRNC governments didn't apply similar programs to their economy. They proffered to wait without doing anything until the crisis in Turkey to pass. This harmed the economy of theTRNC. Similar economic programs were prepared under the pressure of Turkish Republics for the TRNC
economy but the TRNC governments usually didn't apply them as a whole. This also had harmful effects on the TRNC economy
1.3.1.2 Effects Of The Political Situation of TRNC
Since the military operation of Turkey in 1974, no political solution has been reached in Cyprus. Therefore the military situation of Cyprus is a form of "ceasefire" period starting from 197 4 and still continuing.
The Greek administration in South Cyprus is recognized by all countries of the world (except Turkey) as the legal representative of whole Cyprus, with the name of 'Cyprus Republic'. TRNC is not recognized as a separate authority on the island by any other countries except the motherland Turkey.
As a result of the pressures of Greece and 'Republic of Cyprus' all the countries of the world (except Turkey) are applying embargoes to TRNC. This embargoes and the isolations of the TRNC put barriers on the exports and tourism of TRNC. Also increase the transportation costs on international business. Therefore the political situation of TRNC has negative pressure on the economic development of the TRNC.
1.3.1.3 Effects Of Internal Economic Structure
The public sector of TRNC is very huge compared the size of the economy of TRNC. The civil services are overcrowded. Therefore the government expenditures are very high. In the year 2000 total personnel employed by the by the governmental institutions were 22273 persons."
The civil servants obtained the opportunity to retire at very young ages. The
social security gap between civil servants and private sector employees is terribly wide. As a result of this the elasticity of the labor market of TRNC is lost. The social security system of TRNC has collapsed.
The above structure of the public administration of TRNC increases the budget
deficits of TRNC. The budget deficits of the TRNC are shown in the Graph 1.711. This
puts negative pressure on the production of TRNC, hence the increased costs of TRNC products.
TRNC economy is a small island economy. Therefore the smallness and isolations puts barriers against the capital concentration and economic development. The characteristics of small island economies are studied in Chapter II.
Table: 1.3 Indicators of Sectoral Developments (1977 prices million TL)
YEAR AGRICULTURE INDUSTRY TOURISM TRADE CONSTRUCTION TRANSPORT
COMMUNICATION 1977 619,3 365,1 99,7 701,3 153 257,4 1978 757,7 426,5 116,6 673 160,3 293,5 1979 752,7 409,5 143,3 667,4 171,7 317,7 1980 779,5 612,7 114,4 656,5 135,7 285 1981 732,5 458,6 54,8 610,2 170,7 278 1982 772,5 475,5 95,6 755,4 202,7 375,7 1983 512,3 478,1 58,7 817,9 208,8 481,8 1984 686 435,2 74,1 824,9 270,4 485,2 1985 801 510,8 80,9 876,4 263,8 474,5 1986 655,2 600 92,9 887,3 366,5 574,8 1987 677,9 634,4 112,9 933,4 451,3 610 1988 726,7 700,1 136,6 950,8 465,6 694,6 1989 709,1 912,3 140,7 1066,3 501,3 753,8 1990 639,7 947,3 160,9 1173,2 506,3 791,8 1991 580,4 925,3 125,8 1073,9 540,1 675,3 1992 827 949,7 178,2 1079,2 655,2 688,5 1993 891,1 953,6 221,9 1083,9 704,7 746,8 1994 781,1 952,8 235 1023,5 646,7 762 1995 799,8 1001,6 243,6 1149 507,5 812,4 1996 870,8 982,2 210,9 1033,6 523,3 856,9 19ij7 601 1017,7 241,7 1076,2 647,5 937,3 1998 636,2 1029,6 249,5 1201,4 694,6 974,6 1999 822 1054,2 277,8 1280,9 708,6 1043,3 2000 713,5 1096 288,2 1186,4 841,4 1113,5
Source: TRNC Prime Ministry, SPO, Economic and Social Indicators 2000
11
Million TL 1000 800 000 400 200 0.
(:..'\ t,."t:i .{\OJ ~ " 0.. !':) .,}I ~ !b ~ ~ 9) ~ " n.. n, ~ ~ !o ~ .b."t, ,.8) ~
~~~·~$$$~#~$~~~~~~~~~~~~#
·, 0
Graph 1.8: Sectoral Development of Agriculture (1977 pre)
Million TL 1200 1000 800 000 400 200 0 ~'\ .{\"t, ~OJ ~ " n, n, ~ ~ !b ~ db 9) ,.$:) " n.. n, ~ ~ ....R:> ~ !b ,.8) ,.$:) ~ ~· "Cb ~
#
$
"cg, "~"cf> ~
"cg, ~#
.._CQ'"ce, "ce, ~
.._CQ' ~ ~ ~ "<fJ ~ 'l,(3" Graph 1.9: Sectoral Development of Industry (1977 pre)Million TL 350 eco 250 200 150 100 50 0
(:..'\ ~"t, r:.,OJ ~ " n, !!I .,}I ~ !b ~ ~ 9) ,.$:) " n.. n, ~ ~ !b ~ !b ,.8) ,.$:) "OJ "OJ "Cb ""' "cg, ...,ce, ...,ce, ~
"cf> ""'
"cg, ~ .._,¥, ~"ce, ~ ~ ~., "~ ~ ~ ~
"cs• 'l;cyMillion TL 1400 1200 1CD'.l 800 &() 400 200 Q,
e:..." r:.,to e:...<b ~ " n, rt> ~ -~'r.J ,3) ~
.s, ~
s:> " D, t'J ~ S:, ,.So) ~ !o 81 s:> ._Cb "Cb ~ ~ •.••. ~ ~ ~ ~ ...,ur ..._op •.... ~ ..._~#
..._tf/J ...,tfJ ~ ~ "q;, ...,cfJ ...,~· ~#
$-' ');rjSGraph 1.11: Sectoral Development of Trade (1977 pre)
Million TL 1000 800 &() 400 200 0
e:..." LI.to (:..Cb ~ " n, rt> bo ~ .& c; !o 9.1 ..$:l "- D, ~ ~ b !o ~ !o 81 ~
~~·~#~~~##~~~#~~~~~$-'#~#$-'~
Graph 1.12: Sectoral Development of Construction (1977 pre)
Million TL 1200 1000 800 &() 400 200 0
e:..." LI.to e:...Cb ~ " n, rt> ~ ~ !o ~ !b ~ ..$:l " D, t'J ~ b ,.So) ~ !b 81 ..$:l
~ "'I)' ~ ••..• ~ ••..• ~ ••• ~ ~ ~ ••..• ~ "~ •.••. ~ ••• ~ ••..• ~ ~ ..._tfJ "tfJ ...,tfJ •.... ~· ••. cfJ ..._q;, ...,tfJ ...,cfJ ...,tflJ '!;~ Graph 1.13: Sectoral Development of Transport and Communication (1977 pre)
Table: 1.4 Real Growth Rates of Sectoral Value Added (%)
YEAR AGRICULTURE INDUSTRY TOURISM TRADE CONSTRUCTION TRANSPORT COMMUN IC.
1978 22,3 16,8 17,0 - -4,0 4,8 14,0 1979 -0,7 -4,0 22,9 -0,8 7,1 8,~ 1980 3,5 49,6 -20,2 -1,6 -21,0 -10,3 1981 -6 -25,2 -52,1 -7, 1 25,8 -2,5 1982 5,5 3,7 74,S 23,8 18,7 35,9 1983 -33,7 0,5 -38,8 8,3 3,0 28,2 1984 33,9 -9,0 26,7 0,9 29,5 0,7 1985 16,8 17,4 9,2 6,2 -2,4 -2,2 1986 -18,2 ,17,5 14,8 1,2 38,9 21,1 1987 3,5 5,7 21,5 5,2 23,1 6,1 1988 7,2 10,4 21,0 1,9 3,2 13,9 1989 -2,4 30,3 3,0 12, 1 7,7 8,5 1990 -9,8 3,8 14,4 10,0 1,0 5,0 1991 -9,3 -2,3 -21,8 -8,5 6,6 -14,7 1992 42,5 2,6 41,7 0,5 21,3 2,0 1993 7,8 0,4 24,5 0,4 7,6 8,5 1994 -12,3 -0, 1 5,9 -5,6 -8,4 2,0 1995 2,4 5,1 3,7 12,3 -21,5 6,6 1996 8,9 -1,9 -13,4 -10,0 3,1 5,5 1997 -31,0 3,6 14,6 4,1 23,7 9,4 1998 5,9 1,2 3,2 11,6 7,3 4,0 1999 29,2 2,4, 11,3 6,6 2,0 7,0 2000 -13,2 4 3,7 -7,4 18,7 6,7
Source: TRNC Prime Ministry, SPO, Economic and Social Indicators 2000
% 60 40 20 0 -20 -40
% 00 40 20 0 -20 -40 (\rt, .i\Qi ~ ••• n, r!> .,)< !:> ~ Ci. ~ 9) s::, ••• n, !!> ~ ~ ~ (\ to 8) s::,
"Qi "'!). ...<ffl #' .._di' .._di' .._OJ' .._cf, "OJ' ._di' ..,<ffl
#
.ff'
..,rf-' .._<f., ..,rf-' •.. r&, ..,riJ "C&' .._<f., .._rf.:,.ff'
'l,~Graph 1.15: Real Growth Rate of Sectoral Value Added of Industry(%)
% 100,0 80,0 00,0 40,0 20,0 0,0 -20,0 -40,0 -00,0 (\rt, (\Qi ~ " n, ~ .,)< !:> !o Ci. ~ 9) s::, I\ n, e ~ ~ ~ (\ to rPJ !:)
"Qi ._,Qi ••• <ffl #' ..._di' "di' ,$1' ~
#
#' .._OJ' ._cf, "rg., ..._rf., ..,rf-' .._<f., "cy, ,-..riJ ..._cy, •.• rf-' .._ri}; ~ 'l,~% 30,0 25,0 20,0 15,0 10,0 5,0 0,0 -5,0 -10,0 -15,0
(\'o (\(?) I:) " n, n, ..)I ~ ,3) (\ !o Q) s:> " Cl, l'.> ,.bi ~ !o (\ lb 8) I::>
~~####~#~####~~#~~##~~~
Graph 1.17: Real Growth Rate of Sectoral Vaine Added of Trade (%)
% 50 40 30 20 10 0 -10 -20 ..3)
(\'o (\Cb I:) " a, e ..)I ~ !i:> ~ !o Q) S) " Cl, ~ ,.bi ~ ,S'J (\ lb e, ,.$:)
~ "Cb ""' "~ •••• ~ "~ "qp .._rf!> ""' "~ ,ii'
#
,ci> .._(j}) ,ri' ~ •... ~.. ,ci> ,{S"'#
..,cf!) ...,ci> '\,~Graph 1.18: Real Growth Rate of Sectoral Value Added of Construction (%)
% 40,0 30,0 20,0 10,0 0,0 -10,0 -20,0
(\t:o (\Cb I:) " a, e ..)I ~ !i:> ~ !o Sb I::> " n, l'.> ,.bi ~ ,S'J (\ lb P.l ,.$:)
~~###~~#~#####~#~~~#~~~
Graph 1.19: Real Growth Rate of Sectoral Value Added of Transport and
Table 1.5: Sectoral Distribution of Gross Domestic Products (%)
YEAR AGRICULTURE INDUSTRY TOURISM TRADE CONSTRUCTION TRANSPORT COMMUNIC.
1977 16,4 9,7 2,6 18,6 4,1 6,8 1978 19,0 10,7 2,9 16,9 4,0 7,4 1979 1'8-, 1 9,8 3,5 16,0 4,1 7,6 1980 18,6 14,(, 2,7 15,7 3,2 6,8 1981 18,8 11,8 1,4 15,7 4,4 7,1 1982 17,9 11,0 2,2 17,5 4,7 8,7 1983 11,7 10,9 1,3 18,7 4,8 11,0 1984 14,8 9,4 1,6 17,8 5,8 10,5 1985 16,0 10,2 1,6 17,5 5,3 9,5 1986 12,5 11,5 1,7 17,0 7,1 11,0 1987 12,1 11,4 2,0 16,7 8,1 10,9 1988 12, 1 11,7 2,3 15,8 7,7 11,6 1989 10,9 14,0 2,1 16,4 7,7 11,6 1990 9,2 13,7 2,3 16,9 7,3 11,4 1991 8,9 14, 1 1,9 16,4 8,2 10,3 1992 11,7 13,4 2,5 15,3 9,3 9,7 1993 12,0 12,8 3,0 14,6 9,5 10, 1 1994 10,9 13,3 3,3 14,3 9,1 10,7 1~95 10,9 13,6 3,3 15,6 6,9 11,0 1996 11,4 12,9 2,8 13,5 6,8 11,2 1997 7,6 12,8 3,0 13,5 8,1 11,8 1998 7,6 12,3 3,0 14,3 8,3 11 ;6 1999 9,1 11,7 3,1 14,2 7,8 11,6 2000 7,9 12,2 3,2 13,2 9,3 12,3
Source: TRNC Prime Ministry, SPO, Economic and Social Indicators 2000
% 20 15 10 5 0
l'
~'b~°"
s:) " n.. ~ ,.)< ~ !o ~ ,8., 9) ,.$) " n, e ~ s-., !o ~ ~ P.l £)~~~~###~#~$~~~~~~~~~~~~#
% 16 14 12 10 8 6 4 2 0.
~" ~'o ~OJ S) " a, e ~ S:) di::> :'.\ db ~OJ ~ " I),. e ~ S) ..1o :'.\ ...'o 9) ~
"Qi ~ "Cb ~
$' $'
"c/p "CB' .._op "CJJ' .._clJ> ~ .._ur# ~ ~
"<9> ,..,CS'#
.._C!f' "<9> "C!' .._qi; ~~Graph 1.21: Sectoral Contribution of Industry to GDP(%)
% 4 3,5 3 2,5 2 1,5 1 0,5 0
Graph 1.22: Sectoral Contribution of Tourism to GDP (%)
%
20
15 10
5
% 10 8 6 4 2 0 ~" ~'b ~f?, tSl _o.." .r;.'l, !':) ..)l ~ db t\ !b 9) !:) " n, [l> --.bt ~ ,.9) :'\ to ~ ~
"<?> ~ ~ "Cf!' ""T ""j ~ ~ ••.. JP ,;,Cf!' "~ "cl' •... dP •... ~ "<iJ ~ •... <iJ •... ~
#' .... ~ ~ #'
#
"t,!YGraph 1.24: Sectoral Contribution of Construction to GDP (%)
% 14 12 10 8 6 4 2 0 ~" ~'b .t,.<?> s:> " fl, !':) ..)I ~ &> ~ ,.s, 9) ~ " n, e --.bt ~ ,.9) :'\ to ..8) ~ ~ "<?> "'ll' "<§3 "cf, ~ •... ~ ~ $1 ...,<§3 "cf, ~ $1 ~ "cf.l "cf.l ~ ~ "cf'J "~, "<iJ "~ ~ r,,IY
Graph 1.25: Sectoral Contribution of Transport and Communication to GDP (%)
1.3.2. Analysis of Sectoral Developments of TRNC
Sectoral developments of several sectors of TRNC in the period of 1977 - 2000
are examined.12 The main sectors, agriculture, industry, tourism, trade, construction,
transport and communication, financial institutions, business and personnel services are selected. Also, public services and import duties are examined in the same period. (1977 -200.0)
1.3.2.1. Agriculture
Agricultural production was 619 .3 million TL in the year 1977, and it was 713. 5
million TL with the 1977 prices (Table 1.3). Agricultural production increased only 15% in the period of 24 years. The peak agricultural production was 891.1 million TL with the constant prices of 1977, in the year 1993. Graph 1. 8 shows the sectoral
development of agriculture in this period of 24 years. Because of the changes of the climateagricultural production fluctuated. The worst year was 1983 and the agricultural production was 512. 3 million TL with the constant prices of the year 1977. As it is seen from the Graph 1. 8 the agricultural production of TRNC was in the range of 600 - 850 million TL, with the constant prices of 1977, during the period of 24 years.
The fluctuations in the agricultural production of TRNC can be seen better when the growth rates of the sector is examined. ( Graph 1.14) The worst years were the years 1983 and 1997, where the agricultural production decreased by 33.7% and 31.0% respectively. (Table 1.4) The average growth rate of the agricultural production was only 2.20% in the period of 24 years starting from 1977 and ending at 2000. These growth rates imply 1.15 times more growth in agricultural production in 24 years, which is not satisfactory. Although agricultural production had large subsidies, in TRNC the sectoral development was not satisfactory.
The climate conditions and lack of water are the main problems of agricultural production of TRNC. Another problem is the size of production units. Modem production techniques were not adapted to the agriculture ofTRNC. Marketing is also a big problem in agricultural products especially fruits, vegetables, olive etc. In some years, the outputs of some products were too excessive for the domestic market and since there wasn't any export organization for these excess products the production fell down in subsequent years.
The European Union (EU) started from the year 1994 on, not to accept the certificate of origins and health certificates of TRNC. This affected the agricultural production of TRNC. Untill 1994 TRNC was exporting potatoes and citrus especially to United Kingdom and to other European countries. From that year on, the agricultural exports of TRNC decreased dramatically'". Potatoe production decreased and exports stopped. The production of potatoes continued only at very low level for the domestic
13 Ministry of Agriculture and Forestry, Statistics and Planning Division, Agricultural Structure and
market. Citrus production also decreased to the level of less then 50% of the year
197414.
The share of agricultural production to GDP decreased during the period of 24
years starting from 1977 and ending in 2000. (Table 1.5) The share of agricultural
production was 16.4% of the GDP in the year 1977 but it decreased to 9.1 % in the year
2000. The sectoral contribution of agriculture to GDP during the period starting from
1977 and ending in 2000 is plotted in graph 1.20. The gradual decrease of the
contribution of agriculture to GDP is seen from the graph 1.20.
1.3.2.2. Industry
Industrial production was 365 .1 million TL in the year 1977 and it was 1096
million TL with the prices of 1977 in the year 2000. There is a growth in the TRNC
industry but it is not satisfactory. The development of the industry of TRNC is shown on Graph 1. 10.
The growth rates of the industry of TRNC are shown in Table 1.4 and on Graph
1.15. 15 During the period of 24 years starting from 1977 and ending in 2000 the industry
ofTRNC grew in average 5.52% per year. As it is seen from the Graph 1.15 the growth
of industry ofTRNC were negative in the crisis years of Turkey (1981, 1984, 1994) the
industry of TRNC grew in the years from 1977 up to 1989. As it is seen from the Graph
1. 15, the growth rate was fluctuating, because of the new investments in TRNC and on
the other hand because of the crisis in Turkish economy. From 1990 onwards, the
industry of TRNC was in recession. The average growth of the 11 years from 1990 to
2000 is only 1. 70%
The share of industry in GDP was 9.7% in the year 1977. The maximum share
of industry in GDP, in the years 1989 ~ 1992, was around 14%. From 199'1 on, the share
of industry in GDP fell down and it was 12.2% in the year 2000. (Table 1.5) The
sectoral contribution of industry to GDP is plotted on Graph 1.22.16 As it is seen from
14 TRNC Ministry of Agriculture and Forestry, Statistic and Planning Division, Agricultural Structure
arid Production 2000, Nicosia, 2001, p. 50-51
15 TRNC Prime Ministry, SPO, Economic and Social Indicators 2000, p. 10-11
16
Graph 1.22 the growth of industry stopped at 1990. Industrial exports decreased because TRNC lost her comparative advantages. The prices of the factors of production were higher than Turkey. Therefore industrial production decreased while industrial imports from Turkey increased
On the other hand, because of the embargoes and the political status quo of the
TRNC, the transportation costs of TRNC are very high. This is one of the reasons of why the cost of the input materials is higher in TRNC. The transportation costs also affected export prices. After 1994, the certificate of origin problems also put negative pressure on the exports of TRNC. Before 1994, garments were one of the main export items of TRNC, mainly to United Kingdom and to Germany. After 1994 when EU started not to accept the certificate of origins of TRNC, all the garment factories stopped production except a few, which had main company in the EU.
Between TR and TRNC several special trade agreements are signed but only a
few factories managed to export to Turkey17. The off-tariff barriers of Turkey, the high
production costs of TRNC and also the small capacities of TRNC limited the exports to Turkey.
TRNC is a small island economy; therefore, the size of its domestic market is very small. Therefore TRNC firms always had size and capacity problems in export markets, and they worked under capacity in the domestic market. Therefore they couldn't invest for technology, packaging and advertisement. Especially from 1989 onwards, after the radical change of the Turkish economy, passing from import substitution to export-led growth model the TRNC industry was affected from high competition pressure of imports from Turkey.
The above analysis shows that the development of the industry in TRNC is not satisfactory and the TRNC industry has some structural problems which blocks its development. Therefore, radical changes in policy and new strategies are necessary.
17 Sabahattin ismail, TC - KKTC Th.iii Anlasma Protokol v~-sozle~meleri, istanbul, AHA Yaymlan,
)
1.3.2.3 Tourism
'
Total tourism services produced in the year 1977 was 99.7 million TL and it became to 288.2 million TL in the year 2000 with the prices of 1977. This means a growth of 2.89 times in the period of 24 years which is not satisfactory (Table 1.3)
The growth rates of tourism were very unstable. As it is seen from the Table 1.4 and from the Graph 1.16, in the years 1980, 1981, 1983, 1991 and 1996 the growth of
tourism was negative18. The growth was not smooth; too many ups and downs took
place. Sector affected from the political situations in the region and also from the political situation of Cyprus herself. The tourism sector also affected from economic situations of TRNC, Turkey and market countries.
The contribution of tourism sector to the GDP was 2.6% in the year 1977 and it was 3.2% in the year 2000. The maximum contribution of tourism to GDP was 3.5% in 1979 and 3.3% in the years 1994 and 1995. (Table 1.5) Graph 1.22 shows the contribution of tourism to GDP. As it seen from the Graph 1.22 the contribution of tourism to GDP was in the range of2% and 3% during the period of 24 years.
Tourism was selected as the preferential sector and declared to be the locomotive sector for the development of the TRNC. Supports were given for building
new tourism facilities. Several new hotels and holiday villages have been built19. Most
of them has small capacity, even some of them hardly cover the fixed expences, as supports was given not only to the big projects but also to small projects. The supports sometimes was not given to the projects but was given to the owners of the projects. Political and other aspects were considered in supporting the projects. The credits did not tum back. Many inefficient and uneconomic tourism facilities were supported. As a result very weak financial structured organizations took place.
The tourism sector was never planned as a whole, starting from potential markets, marketing strategy, transportation, prices and services. Only by taking into account the climate conditions and the nature of the TRNC, tourism was decided to be
18
TRNC Prime Ministry, SPO, Economic and Social Indicators 2000, pp. 10-11.
19 KKTC Basbakanlik, DPO, 1998 Genel Sanayi ve i~yeri Saynm, Lefkosa, KKTC Devlet Basimevi,
preferential, locomotive sector. The capacities were not planned. The problems of transportation, the negative pressure of the embargoes on the sector, the service prices, and other problems of tourism had not been considered.
Considering UK as one of the main tourism market of the TRNC, a tourist from UK can have a one-week holiday in South Cyprus with the cost of a travel ticket price to TRNC20. TRNC is the most expensive place in the region. Today, the tourism sector has no comparative advantage, comparing with the south region of Turkey and also as compared with South Cyprus.
On the other hand the financial situation of most of the tourism firms is very weak. They don't have enough finance to pay back their loans and also to give quality service to the tourists. The anti propaganda of South Cyprus and Greece against TRNC also affects the tourism sector ofTRNC.
As it is explained above, tourism sector of TRNC has structural and strategic problems, as marketing, transportation, service prices, hotel sizes and financial positions of the firms. These structural problems have to be solved fast in order to increase the contribution of tourism to TRNC economy.
1.3.2.4 Trade
The volume of trade of TRNC was 701.3 million TL in the year 1977 and it
became 1186. 4 million TL in the year 2000 with the 1977 prices. This means 1. 69 times
increase in trade, again, which 1.s not satisfactory (Table 1.3)21
<'
In the years of 80' s there was a smooth growth in the TRNC trade-( Graph 1. 11).
In the same period Turkish government applied import substituting economy and TRNC economy was an open economy. Many goods were imported to TRNC and exported to Turkey. At the second half of 80's Turkey left import substitution and passed to export based growth; hence the Turkish economy became more liberal and open. Importing goods from other countries and sending them to Turkey decreased in TRNC. As it is
20 Northern C)cprusJ:loteliers Association, KITOB News,.March,April2001, Issue.Ix, p.21
21 TRNC Prime Ministry, SPO, Economic and Social Indicators 2000, pp 8-9
seen from the Graph 1. 11 there was a recession in the trade sector in the years 1991 - 1994. After these years, imports from other countries shifted to Turkey and the volume of the trade sector started to increase again.
The 'growth rates of trade sector can be seen from Table 1.422. The average growth rate of trade was 2.5% per year during the period of 24 years, which is not satisfactory. Since the production and exports were not growing satisfactorily then the growth of trade was not satisfactory. The isolations and embargoes affected the TRNC trade. The production costs and exports prices increased. The competition power of
TRNC products in the world market decreased. Therefore, while exports decreasing the imports increased, hence TRNC had a huge foreign trade gap.
Trade was 18.6% of the total GDP in the year 1977, but this share decreased to 13.2% in the year 2000. This also shows that the growth of trade was not satisfactory during the 24 years starting from 1977 and ending in 2000. (Table 1.5 and Graph 1.23)
1.3.2.5 Construction
The volume of construction sector of TRNC was 153 million TL in the year
1977 and it increased to 841. 4 million TL in the year 2000 with the prices of 1977.
(Table l.3) The growth was 5.49times during the period of24 years.23
In the years between 1977 and 1982, the growth of construction sector was negligible because of the new settlement of Turks in North Cyprus. There were a lot of vacant buildings left by the Greek Cypriots, which had to be occuppied first.
(
In the years of 1980's new infrastructures were constructed. Kyrenia port, new highways between Famagusta, Lefkosa and Kyrenia were constructed. New hotels and touristic buildings were constructed. Also many Turkish Cypriots living in other countries built or bought a house in Northern Cyprus. As a result of these investments the construction sector increased rapidly in these years. (Graph 1.12)
22
lbid.,.. PP-- LO- n.
23
The years 1994, 1995 was crisis years of Turkish and TRNC econormes. Therefore construction stopped. Then construction sector started to increase again. After these years, the renewals of the roads and enlargements of 'highways of TRNC started. The enlargement of Lefkosa ~ Kyrenia and Lefkosa - Famagusta highways took place, which gave upward trend to construction sector. (Graph 1.12)
The growth rates of the construction sector are seen in Table 1.424. The crisis in
Turkish economy affected directly in negative way to the construction sector of TRNC. The finance of the building of the infrastructures of TRNC has been made directly from Turkey. Therefore in the crisis years of Turkey the flow of finance to the infrastructure projects decreased. The construction sector grew 8.32% per year in average during this period, which is satisfactory.
The contribution of construction to GDP was 4 .1 % in the year 1977 and it increased to 9.3% in the year 2000. (Table I.5)25 Sectoral contribution of construction
to GOP of TRNC is shown in Graph 1.24 The gradual increase of the construction sector ofTRNC is seen in Graph 1.24 except the crisis years of Turkey.
1.3.2.6 Transport and Communication
The volume of transport and communication sector was 257.4 million TL in the year 1977 and it became 1113.5 in the year 2000 with the prices of 1977 (Table 1.3) the sector grew 4.32 times during the period of 24 years". As it is said above, there were a lot of investments on the infrastructure of TRNC, mainly roads, telecommunications and ports (both air and sea ports) all of which were financed from Turkey. Therefore
~
transport and communication sector developed satisfactorily.
The development of transport and communication sector can be seen from the Graph 1. 13. The growth is smooth; there is a drop in the year 1991 which can be explained by the Gulf Crisis in the region.
24
Ibid., pp. 10-11
25 Ibid
The growth rate of transport and communication sector was 12.0% in the year 1978 and 6.7% in the year 2000. (Table 1.4) The average growth rate of the sector was 7 .11 % per year. The growth rates of the transport and communication sector can be seen on Graph 1.19.27
Transport and communication sector was 6.8% of the GDP in the year 1977 and it became 12.3% of the GDP in the year 2000. (Tablel.5) The sectoral contribution of
Transport and Communication to the GDP of TRNC is seen on the Graph 1.25 .28
There were satisfactory investments on transport and communication infrastructure. The political situation of Cyprus affected to the transportation sector of TRNC. The same distance transport to and from TRNC is expensive compared the other countries in the same region. There isn't any direct flight to TRNC except from Turkey. Therefore the excess connections increase the transportation costs.
27 Ibid., pp. 10-11
28
Table 1.6: Indicators of Sectoral Developments (1977 prices million TL)
FINANCIAL BUSINESS AND PUBLIC
YEAR
INSTITUTIONS PERSONNEL SERVICES IMPORT DUTIES
SERVICES 1977 115,4 128,1 752,7 228,2 1978 135,4 135,8 765,6 168,2 1979 144,6 140,7 900,5 150,5 1980 150,1 152,3 8.94,6 87,6 1981 151 137,4 892,1 81,3 1982 163,5 157,1 911,8 86,9 1983 187,6 151,4 996,3 169,4 1984 201,6 162,1 1019,9 155,3 1985 217,5 169,4 1115 151,5 1986 224,1 188,2 1137,2 160,5 1987 244,5 201,1 1181,2 181,4 1988 266,3 214,2 1197,8 286,1 1989 287,5 235,7 1227,7 312,1 1990 310 259,3 1278, 1 491,7 1991 326 263,1 1292,6 363,6 1992 333,9 284,1 1303,6 392,2 1993 354,2 294,1 1320,8 457,5 1994 361,6 274,8 1346,2 357,5 1995 409,5 280,6 1316,8 428,6 1996 423,7 518,7 1351,1 449,5 1997 482,1 655,7 1358,6 521,1 1998 524,4 679,2 1406, 1 547,6
rsss
568,4 784 1438,6 584,4 2000 529,6 700 1483,3 604,5Source: TRNC Prime Ministry, SPO, Economic and Social Indicators 2000
Million TL 00) 500 400 3D 200 100 0
A'\, (!..q, A~ ,S> "- !\, e .,}I b ..!o {\ .& 9) $.) r-.. 0, r!> ~ ~ ~ {\ ~ 9) ~
"'ll' ~ "'ll' ,OJ' "cf., ,cf.i "'~ ,O.P ,<13 ,$1' ,cf.i ,OJ' ,<13 "~ "~ "~ ,<i' ,re' "~ "~ ~ ,csJ ~ "'t3'
Graph 1.26: Sectoral Development of FinancialInstitutions (1977 pre)
Million TL 1CXX) 800 eeo 400 200 0 t\'\ t\q:, t\°-' ,s, •... n, !l> ,.)< ~ . db l\ db 9> ,$;) •.•. n, !?> ~ b rS:> t\ !b 9> !:)
~ ..._o., ~ ~ ..,<I'
#
..,<I' ..._CH' ..._c§> ~ ..,<I' ~ ..,c§> •••• ~ ~ ..,ti' ..._cf, ~· ~ ..._qj" .._cf, •••. ~ .._ff,, 'l;<SSGraph l.27: Sectoral Development of Business and Personal Services (1977 pre)
Million TL ieco 1400 1200 1CXXJ 800 eoo 400 200 0 t\'\ t\q:, t\°-' ,s, -~" n, !l> ,.)< -~":, db -~ db 9> ,$;) •••. n, .s:,.":i bo b rS:> ..& ,.S> 9> ~
~ ..._o., ~ .._CH' •••. 'U"'
# # ~ ....
VJ' ~e: ~
..._c§> ~ ~ ..._cf, •••. ~- ~ ..._ff,, ~ •••. ~- •••. ~ .._ff,, 'l;(Y Graph 1.28: Sectoral Development of Public Services (1977 pre)Mi'llion TL 0 700 eco 500 400 eoo 200 100
